FEDERAL COURT OF AUSTRALIA

Stacey Brothers Plumbing Pty Ltd v Waterco Limited [2009] FCA 438

PRACTICE AND PROCEDURE – respondent representative order sought against a franchisee as representative of other franchisees in respect of alleged patent infringements – application made to amend pleadings to expand the group to include persons who were not franchisees – whether proceeding should continue as a representative proceeding under O 6 r 13 of the Federal Court Rules – whether “same interest” and “numerous persons” criteria satisfied to enliven jurisdiction – lack of commonality of interest in the putative group and the representative – proceeding not to continue as representative proceeding – O 6 r 13 of the Rules does not allow amendment to expand group of represented persons

Federal Court Rules O 6 r 2, O 6 r 13, O 13 r 2     

Duke of Bedford v Ellis [1901] AC 1 referred to

Carnie v Esanda Finance Corporation Ltd (1995) 182 CLR 398 referred to

Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd (2006) 229 CLR 386 referred to

Wong v Silkfield Pty Ltd (1999) 199 CLR 255 cited

Trustees of the Roman Catholic Church for the Archdiocese of Sydney v Ellis (2007) 70 NSWLR 565 referred to

BT (Australasia) Pty Ltd v New South Wales [1997] FCA 1553 referred to

Taff Vale Railway Co v Amalgamated Society of Railway Servants [1901] AC 426 cited

London Association for Protection of Trade v Greenlands Ltd [1916] 2 AC 15 cited

John v Rees [1970] 1 Ch 345 cited

Amos Removals & Storage Pty Ltd v Small [1981] 2 NSWLR 525 discussed

Geelong Wool Combing Ltd v Textile, Clothing and Footwear Union of Australia (2003) 130 FCR 447 referred to

Tony Blain Pty Ltd trading as Acme Merchandising v Jamison (1993) 41 FCR 414 cited

EMI Records Ltd v Kudhail [1985] FSR 36 cited

Irish Shipping Ltd v Commercial Union Assurance Co Plc [1991] 2 QB 206 referred to

Mercantile Marine Service Association v Toms [1916] 2 KB 243 referred to

Roche v Sherrington [1982] 2 All ER 426 referred to

Hardie & Lane Ltd v Chiltern [1928] 1 KB 663 cited

Minister for Industrial Development of Queensland v Taubenfeld [2003] 2 Qd R 655 referred to

SZ v Minister for Immigration and Multicultural Affairs (2000) 172 ALR 172 followed

Bright v Femcare Ltd (2002) 195 ALR 574 referred to

STACEY BROTHERS PLUMBING PTY LTD v WATERCO LIMITED (ACN 002 070 733) and DENBY FALLS PTY LTD (ACN 064 991 555) (TRADING AS SWIMART BALWYN) (FOR AND ON BEHALF OF ITSELF AND AS A REPRESENTATIVE OF THE REPRESENTED PERSONS)

VID 964 of 2008

KENNY J

5 MAY 2009

MELBOURNE

THE COURT ORDERS THAT:

1.                  The motion, notice of which is dated 11 February 2009, be dismissed.

2.                  The application and the statement of claim, both filed 18 November 2008, be struck out in so far as they refer to “the Represented persons”, and in particular the following paragraphs be struck out:

            (a)        in the application – paragraph 9 (in its entirety) and paragraphs 1 to 5 and 7 (in              so far as these paragraphs refer to “the Represented persons”); and

            (b)        in the statement of claim – paragraphs 4, 5, 30 and Schedule 1 (in their                          entirety) and paragraphs 10, 12, 13, 14, 16, 17, 18, 19, 20, 21, 23, 24, 27, 28                    and 29 (in so far as these paragraphs refer to “the Represented persons”). 

3.                  Within seven days of the date hereof, the applicant file and serve an amended statement of claim in conformity with paragraph 2 hereof.

4.                  The applicant pay the respondents’ costs of the applicant’s motion, notice of which is dated 11 February 2009, and the costs of the respondents’ motion, notice of which is dated 10 February 2009. 

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using eSearch on the Court’s website.

REASONS FOR JUDGMENT

Introduction

1                     There are two motions before the Court, which were heard together.  For the reasons explained below, the respondents have succeeded on the first of these motions.

2                     By a notice of motion dated 10 February 2009, the respondents – Waterco Ltd and Denby Falls Pty Ltd trading as Swimart Balwyn – sought various orders, principally that the proceeding not continue as a representative proceeding.  At the hearing, the respondents relied on two affidavits of Scott Robert James Sloan of 11 February 2009 and 18 February 2009.   After the hearing, the respondents sought leave to file a third affidavit of Mr Sloan.  I discuss this affidavit below. 

3                     By a notice of motion dated 11 February 2009, the applicant, Stacey Brothers Plumbing Pty Ltd, also sought various orders, including that Swimart Balwyn be appointed to represent itself and any person who, at any time since 22 February 2007, was:

(a)        a supplier of, amongst other things, pool filtration components supplied to him, her, them or it [by Waterco]; further or alternatively

(b)        an installer of pool filtration systems,

and who has displayed to the public:

(c)        the Drawing (as defined in [8] of the Amended Statement of Claim …);   further or alternatively

(d)        the Poster (as defined in [9(a)] of the Amended Statement of Claim …).

4                     If this order were to be made, Stacey Brothers would need to amend its pleadings.  Accordingly, Stacey Brothers sought leave to amend.

5                     In support of its motion and in opposition to the respondents, Stacey Brothers relied on the affidavit of Joel Pascual Dy of 11 February 2009.  After the hearing, Stacey Brothers sought leave to issue a subpoena to Waterco – a matter referred to below.  Leave has yet to be granted. 

6                     In his affidavit, Mr Dy sets out the background to the proceeding and the applicant’s current motion.  Mr Dy deposes that Stacey Brothers is the registered proprietor of an innovation patent no 2007100141 for an invention entitled “Pool Filtering System”.  This is the patent in suit.  The patent was filed with the Australian Patent Office on 22 February 2007 and was certified on 28 August 2007.  The patent in suit is a divisional patent of patent application no 2006201905, which was filed on 5 May 2006, and in turn claims priority from provisional patent application no 2005902284 filed on 5 May 2005.  The complete specification of the standard patent application was published by the Australian Patent Office on 23 November 2006 and the patent in suit, on 22 March 2007.

7                     The applicant’s director, Graham Stacey, visited the retail premises of Swimart Balwyn in August 2008, where he saw the Poster and the Display System referred to in the applicant’s statement of claim.  Swimart Balwyn is part of the Swimart franchise owned by Waterco.  Mr Stacey’s partner had earlier discovered the Drawing referred to in the statement of claim in the course of an internet search.  Mr Stacey formed the view that Waterco had distributed the Poster to some, if not all, Swimart franchisees.

The pleadings

8                     In order to understand the parties’ respective positions, it is necessary to refer to the pleadings.  Stacey Brothers filed an application and a statement of claim on 18 November 2008, and an amended application and an amended statement of claim, on 5 December 2008.  The respondents objected that Stacey Brothers had no leave to amend, such leave being required.  Hereafter, I refer to the amended statement of claim without addressing the leave issue.  I address this issue at the end of these reasons.   No defence or counterclaim has yet been filed. 

9                     In its pleadings, Stacey Brothers describes itself as a designer and installer of swimming pool water filtering systems that include at least a swimming pool and drain.  According to the pleadings, Waterco is the franchisor of a chain of franchises in Australia trading under the brand name ‘Swimart’; a manufacturer of pool filtration components; and a supplier of these components to Swimart franchisees.  The amended pleading of 5 December 2008 would extend this supply to “other retailers of pool filtration components and installers of pool filtration systems”.  Stacey Brothers alleges that each franchisee of Swimart “conducts the business of a retail pool and spa store and the provision of on-site pool services”.  Swimart Balwyn is said to be a Swimart franchisee and a supplier of pool filtration components supplied to it by Waterco. 

10                  I interpolate here, that, in his affidavit of 11 February 2009, Mr Sloan deposed that there are presently 58 franchisees in Australia and that “the vast majority are independently owned and operated”.

11                  Relying on s 13 of the Patents Act 1990 (Cth), Stacey Brothers alleges that Swimart Balwyn and the represented persons (as defined in the pleadings) have directly infringed the patent in suit.  The infringement is said to be constituted by Swimart Balwyn and the represented persons offering to make pool filtration systems as claimed in claims 1 and 5 of the patent, without Stacey Brothers’ licence or authority.  The infringement allegedly occurred in the following circumstances. 

12                  According to the pleadings, a Mr Moutafis, trading as Xenomedia, made a 3D computer drawing of a pool filtration system as claimed in claims 1 and 5 of the patent, which Waterco incorporated in a Poster supplied to Swimart franchisees.  In his affidavit of 11 February 2009, Mr Sloan said that the only use that Waterco made of the Drawing was to put it in the Poster.  Hereafter in these reasons, a reference to the Poster includes a reference to the Drawing.

13                  Stacey Brothers alleges that Swimart Balwyn and the represented persons displayed the Poster, or a Display System in accordance with the Poster, at their retail premises and, I interpolate, thereby offered to make a pool filtration system within claims 1 and 5 of the patent in suit.  Alternatively, Stacey Brothers alleges that Swimart Balwyn and the represented persons have infringed claims 1 and 5 of the patent, by making a pool filtration system in accordance with the Poster and/or the Display System.  Mr Sloan’s affidavit of 11 February 2009 indicates, however, that only Swimart Balwyn made the Display System photographed in its store and referred to in the statement of claim.

14                  Relying on s 117 of the Patents Act, Stacey Brothers also makes an indirect infringement claim.  Stacey Brothers alleges that Swimart Balwyn and the represented persons indirectly infringed claims 1 and 5 of the patent in suit by supplying to installers of pool filtration systems at least one pool filtration component in circumstances where the installers have used that component or components to make a pool filtration system as claimed in claims 1 and 5 of the patent in accordance with instructions or inducements contained in product information published by Swimart Balwyn, or the represented persons, as the case may be. 

15                  Stacey Brothers pleads that Waterco authorised Swimart Balwyn and the represented persons to exploit the invention as claimed in claims 1 and 5 of the patent, thereby infringing those claims.  Waterco is also alleged to be a joint tortfeasor with, and to have procured and directed the wrongful conduct of, Swimart Balwyn and the represented persons. Further, Stacey Brothers claims against Waterco that Waterco was involved in misleading or deceptive conduct contrary to s 52 of the Trade Practices Act 1974 (Cth) in that it failed to warn Swimart Balwyn or the represented persons that making a pool filtration system in accordance with the Poster would infringe the patent.

16                  Stacey Brothers seeks declaratory and injunctive relief, damages or an account of profits in connection with its infringement claims, and damages in respect of its claim of misleading and deceptive conduct.

The class of represented persons

17                  Paragraphs 4 and 5 of the amended statement of claim of 5 December 2008 read as follows:

4.         Pursuant to Order 6, rule 13 of the Federal Court Rules, the Applicant brings      this proceeding against Swimart Balwyn as representing itself and each and        every other Swimart franchisee person or persons who has or have, since 22          February 2007, displayed at his, her, their or its retail premises any of:

            (a)        the Drawing (as defined in paragraph 8, below);

            (b)        the Poster (as defined in paragraph 9(a), below);

            (c)        the Display System (as defined in paragraph 10(c), below),

            or who has, since 22 February 2007, installed a pool filtration system in     accordance with any or all of the Drawing, Poster and Display System            (collectively, the Represented persons).

5.         Each represented person is and was at all material times:

            (a)        a Swimart franchisee;

            (a)        a supplier of, among other things, pool filtration components                                 supplied to it by Waterco; further or alternatively       

            (b)        an installer of pool filtration systems.

18                  It is apparent from the above that Stacey Brothers originally proposed that the represented persons be the Swimart franchisees who had displayed the Poster or Display System, or installed a pool filtration system in accordance with the Poster or Display System.  As amended on 5 December 2008, Stacey Brothers proposed that the group include all persons who had done these things.  

19                  In support of Stacey Brothers’ present motion, Mr Dy explained that, at the commencement of the proceeding, Stacey Brothers did not know that Waterco had delivered the Poster to retailers and installers other than Swimart franchisees.  In relation to the amendments of 5 December 2008, Mr Dy deposed that he had:

since formed the view that those amendments, which in the main concern the expansion of the class of persons represented by Swimart Balwyn:

(a)        required an order of the Court pursuant to Order 6 rule 13(2) of the Federal        Court Rules; and

(b)        should be further amended so as to better define the represented class in accordance [with Stacey Brothers’ motion].

20                  This third definition of the group of represented persons (in the notice of motion) embraced suppliers of Waterco pool filtration components and installers of pool filtration systems displaying the Poster to the public.  In written submissions, Stacey Brothers said:

The scope of the proposed group definition encompasses Swimart franchisees and other persons (being suppliers of pool filtration components and/or installers of pool filtration systems) that have displayed to the public the Poster or the Drawing.  It is this conduct that identifies Swimart Balwyn and each Represented person as having the ‘same interest’ within the meaning of the Rule.  The group definition will no longer extend to persons who have merely displayed the Display System or have installed pool filtration systems in accordance with the Poster, Drawing or Display System.  The amendment to the group definition is made to remove any doubt that a direct link exists between the conduct of Waterco and each of Swimart Balwyn and the Represented persons.

21                  In submissions at the hearing, counsel for Stacey Brothers said that the purpose of amending the definition of represented persons was to “capture” the persons that Stacey Brothers would like Swimart Balwyn to represent, being “those people who were given the poster by Waterco and displayed it, and those people who installed, after that, water systems in accordance with their poster”, and “[t]hose persons who sold pool filtration equipment which ended up in a system which infringed the patent – when that component was sold with the inducement of the poster there, or the instructions of the poster used”.

Parties’ submissions

22                  The respondents maintained that the proceeding should not continue as a representative proceeding because of the lack of “same interest” or “numerous persons”, as required by O 6 r 13(1) of the Federal Court Rules.  Alternatively, as a matter of discretion, the Court should not permit the proceeding to continue as a representative action.  In support of these propositions, they advanced the following propositions.

1.                  The proposed groups of represented persons were uncertain, too broad, and in the nature of a “moving feast”.  There was no common interest in the proposed groups except an interest in defending the litigation.  No group met the “same interest” criterion in O 6 r 13.  The representative action rules were not a substitute for the applicant “correctly identifying proper respondents and identifying a basis to issue against each of those respondents prior to the issuance of proceedings as is the normal course”. 

2.                  In its original statement of claim, Stacey Brothers identified the represented persons as a subgroup of the Swimart franchisees – those franchisees displaying the Poster or Display System, or installing a pool filtration system in accordance with the Poster or Display System.  This original group was not capable of being identified without controversy.  In its amended statement of claim of 5 December 2008, the group was defined as any person displaying the Poster or Display System, or installing a pool filtration system in accordance with the Poster or Display System.  This group was no less uncertain since it defined a group based on issues of fact in dispute in the proceeding.  Defining the group in terms of Stacey Brothers’ notice of motion did not cure these defects.  Moreover, all the proposed groups were open-ended in the sense that persons might enter the group at any time while the proceeding was on foot.

3.                  The defences and/or cross-claims of persons within the proposed groups of represented persons and Swimart Balwyn were likely to differ.  There could be an infringement only if what was in question was an installation of a pool filtration system within claims 1 and 5 of the patent in suit.  This was likely to be denied.  Possible defences might also depend on the particular facts relating to the business of a person in the group: see, e.g., ss 119 or 123.  Persons within the group might challenge the validity of the patent on different grounds.  The quantification of damages might also depend on the particular conduct of the group member: cf s 122(1A).  The position of Strathfieldsaye Pump & Pool Shop (referred to in Mr Dy’s affidavit of 11 February 2009 and Mr Sloan’s affidavit of 18 February 2009) illustrated that there were likely to be relevant differences between group members.  Further, Swimart Balwyn’s liability for the Display System depended on circumstances peculiar to it. 

4.                  The pleading did not depend only on the display of the Poster, as Stacey Brothers alleged at the hearing of the motions.  The relief sought emphasised the broader character of its claims.

5.                  Swimart Balwyn was not “in management” of any of the proposed groups.  Swimart Balwyn operated its business independently and had no legal relationship with the represented persons.  Reference was made to Mr Sloan’s affidavit of 11 February 2009.

6.                  Other deficiencies in the proposed groups included that the groups included persons displaying the Poster since 22 February 2007.  There could be no infringement until the patent in suit became open for inspection on 22 March 2007.  Persons displaying the Poster between 22 February and 22 March 2007 could not have infringed.  Moreover, Stacey Brothers neither pleaded nor put forward evidence to show that the five other business listed in Schedule 1 to the statement of claim had displayed the Poster or Display System.  Stacey Brothers “has approached matters in the wrong order”. 

7.                  Order 6 r 13 did not permit the making of orders expanding the class of represented persons after proceedings are brought.  The amendments proposed by Stacey Brothers on 5 December 2008 and in its present motion would expand the represented group beyond the Swimart franchisees.  Further, O 13 r 2 did not support the addition of new parties.

23                  Stacey Brothers supported the maintenance of a representative proceeding under O 6 r 13 and the amendment of its definition of the represented group on the following bases.

1.         Order 6 r 13 was a rule of convenience, designed to avoid a multiplicity of         proceedings.  The Dy affidavit showed that the rights of many might effectively be         determined in this proceeding.  The alternative would be that Stacey Brothers initiated possibly 58 proceedings or had as many respondents joined to the one proceeding.  The Dy affidavit showed that “the Swimart Franchisees [were] scattered throughout Queensland, New South Wales, Victoria and the Australian Capital Territory and that there would be substantial cost and inconvenience in identifying which ones displayed the Poster or installed the pool filtration system in accordance with it and then joining them to this proceeding or commencing fresh proceedings against them”.

2.         There were common questions of law and fact as to whether there was infringement and whether the conduct of the represented persons and Waterco was linked.  The represented persons had the same interest in the proceeding as a result of displaying the Poster to the public.  The same interest requirement might exist notwithstanding the representing party and the represented persons had individual interests in addition to common interests.  Whether the same interest existed was determined by reference to the pleadings.   

3.         By reason of the group definition, the represented persons and Swimart Balwyn will have either: “(a) displayed the Poster … or Display System …; or (b) installed or procured the installation of a pool filtration system in accordance with the Poster, … or Display System”.  Thus, the represented persons and Swimart Balwyn had the same interest in having the Court determine whether a pool filtration system in accordance with the Poster or Display System would, if built and used, infringe claims 1 and 5 of the patent in suit.  If yes, then any such franchisee would have infringed the patent if the franchisee offered to make, or made, the system in accordance with the Poster.  Such a finding would also be relevant to the issue of indirect infringement. 

4.         The Poster was “the key element”.  A group as defined in the motion would be confined to people who had some interest in pool filtration equipment or in installing pool filtration systems and had displayed the Poster to the public.  The common questions was “whether or not a pool filtration system built in accordance with the Poster, as the Poster depicts the pool filtration system, falls within claims 1 and 5 of the patent”.

5.         Whilst the original definition of the represented persons had the potential to extend to all who had infringed the patent, this might be cured by the proposed amendment.

6.         Whilst the represented group was open-ended, this could be corrected later in the proceeding.

7.         The group was properly defined by reference to 22 February 2007.  Alternatively, the pleading might be amended to avoid this issue, because Waterco did not distribute the Posters until mid 2007. 

8.         Different defences and cross-claims might be managed under subrules (4), (5) and (6) of O 6 r 13.  Even if direct and indirect infringement depended on the particular circumstances of a group member, O 6 r 13(6) provided the necessary protection. 

9.         Order 6 r 13(2) (alternatively, the “control power” and O 6 r 13(1)) permitted the Court to extend the group of persons a respondent is to represent after the commencement of the proceeding.

10.     After amending the group, the next step would be discovery against Waterco, to ascertain the group of represented persons.  The outcome of discovery might be an application for joinder, especially if the group were found to be small.  The members of the class might be named after discovery.  The Court should not rule on the             representative proceeding until after discovery.  The present application to discontinue the proceeding as a representative proceeding was premature, because there were various ways in which the Court might manage it, and the size of the group was not yet known.  Notice might later be given to each represented person to       afford an opportunity to apply to become a joined party. 

Consideration

24                  The respondents have challenged as unsuitable for a respondent representative action all three groups as defined by Stacey Brothers.  Whether this challenge succeeds depends on O 6 r 13 of the Rules. 

25                  Order 6 r 13(1) provides as follows:

Where numerous persons have the same interest in any proceeding the proceeding may be commenced, and, unless the Court otherwise orders, continued, by or against any one or more of them as representing all or as representing all except one or more of them.

Therefore, before O 6 r 13(1) can be invoked, there must be “numerous persons” having “the same interest in [the] proceeding”.  This requirement must be satisfied at the time the proceeding is commenced.  The interest in question is an interest in the proceeding, to be judged by reference to the effect of the matters at issue on the rights and obligations of the representing respondent and the represented persons.  A representative proceeding will not necessarily be defeated because some members, or even the representing party, have separate interests additional to a common interest, providing there is a common interest: compare Duke of Bedford v Ellis [1901] AC 1 at 7 per Lord Macnaghten. 

26                  Thus, on the respondents’ motion, the basic question is whether, at the time the proceeding commenced, it could be said that numerous persons had the same interest in the proceeding as between themselves and Swimart Balwyn.  For the reasons stated below, I would answer this question in the negative.

27                  In order to understand my reasons for ruling against Stacey Brothers, it is necessary to refer to the case law on the operation of O 6 r 13 and provisions like it.

28                  The High Court considered Pt 8, r 13 of the Supreme Court Rules (NSW), which at the time was relevantly the same as O 6 r 13 of the Federal Court Rules, in Carnie v Esanda Finance Corporation Ltd (1995) 182 CLR 398 and Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd (2006) 229 CLR 386: contrast Wong v Silkfield Pty Ltd (1999) 199 CLR 255, an applicant representative action under Pt IVA of the Federal Court of Australia Act 1976 (Cth).  As noted in Carnie, “the ancestor” to these Rules “is to be found in the English Rules of the Supreme Court”, which was “in turn derived from an earlier rule which itself was derived from the practice of the Court of Chancery”: see Carnie 182 CLR at 415 per Toohey and Gaudron JJ and 427-429 per McHugh J. 

29                  Some care needs to be taken, however, with regard to Carnie and Campbells Cash since both concerned plaintiff representative actions, not defendant representative actions.  Thus, in Carnie 182 CLR at 404, Mason CJ, Deane and Dawson JJ said that the purpose of the representative procedure was “to facilitate the administration of justice by enabling parties having the same interest to secure a determination in one action rather than in separate actions”.  In Campbells Cash 229 CLR at 422 [55], Gummow, Hayne and Crennan JJ made much the same point, saying:

A central objective of the representative procedures for which Pt 8, r 13 provided was the avoidance of multiplicity of proceedings and the efficient determination, once and for all, of controversies in which parties have the same interest.  An important indication of the nature of the interest that numerous persons must have in proceedings instituted under Pt 8, r 13 was given by Pt 8, r 13(4).  A judgment entered or order made in the proceedings ‘shall be binding on all the persons as representing whom the plaintiffs sue’.  What the rules were intended to achieve was a single determination of common issues in a way that binds those who were interested in those issues.

30                  Speaking generally, it may be accepted that an important purpose of the representative procedure in O 6 r 13 of the Federal Court’s rules, whether the proceeding is an applicant representative proceeding or a respondent representative proceeding, is to avoid numerous proceedings where one proceeding could determine a common question in which numerous persons have the same interest.  There are, however, differences in the purposes of applicant and respondent representative proceedings.  In the present case, in contrast to an applicant representative action, the question is whether there can be a single determination of a common issue of law or fact in a way that binds those interested to justify some relief the applicant seeks against them.  This must be determined by reference to the issues that the proceeding raises and the relief that is sought.

31                  As Carnie and Campbells Cash show, though simply expressed, the requirement of “same interest” has presented difficulties.  In Carnie the High Court held that persons having separate causes of action in contract and tort might have the same interest in a proceeding for the purposes of the representative proceeding rules as they then stood in the NSW Supreme Court.  The fact that the represented persons’ claims arose under separate contracts was held insufficient to defeat the requirement that there be numerous persons having the same interest.  In Carnie 182 CLR at 405, Mason CJ, Deane and Dawson JJ held that, in the circumstances of that case, numerous persons had “the requisite commonality of interest” to satisfy the jurisdictional requirement of the rule.  Toohey and Gaudron JJ reached a similar conclusion, holding that the onus was on the named plaintiffs “to identify the class with sufficient particularity”, without necessarily identifying every member, and that they had done so, noting that “[t]he class is not open-ended; it is limited to those persons who have credit sale or loan contracts with the respondent which have been varied in circumstances where the variation has been executed in such a way as to be inconsistent with the [Credit] Act”: see Carnie 182 CLR at 422.

32                  In discussing Carnie in Trustees of the Roman Catholic Church for the Archdiocese of Sydney v Ellis (2007) 70 NSWLR 565 at 582 [74], Mason P, with whom Ipp JA and McColl JA agreed, usefully summarised the various approaches in Carnie thus:

McHugh J suggested (at 427) that a plaintiff and the represented persons would have ‘the same interest’ in legal proceedings when they have a community of interest in the determination of any substantial question of law or fact that arises in the proceedings.  Brennan J (at 408) agreed with this test.  Toohey and Gaudron JJ said (at 421) that persons would have the same interest in proceedings if there was a significant question common to all members of the class and they stood to be equally affected by the (declaratory) relief sought by the appellants in the instant proceedings.  Mason CJ, Deane and Dawson JJ thought (at 404) that the ‘same interest’ requirement ‘may … [extend] to a significant common interest in the resolution of any question of law or fact arising in the proceedings’.

33                  In Campbells Cash, a proceeding was instituted in the name of one plaintiff and a group of represented retailers who chose, by opting-in, to be bound: see Campbells Cash at 421 [52].  Gummow, Hayne and Crennan JJ accepted, at 421 [54], that “the rule did not require the separate identification of, and consent from, those who were said to constitute the ‘numerous persons’”.  In Campbells Cash, their Honours held, however, that, at the commencement of the proceeding, there was no person, other than the named plaintiff, who had an interest in the proceeding, because no order or judgment given in the proceeding would have bound any other person: see Campbells Cash at 422 [57]-[58]; and see also 472-473 [222]-[226] per Callinan and Heydon JJ.  Accordingly, the jurisdictional requirement was not met.

34                  As foreshadowed, I accept that there are significant differences between plaintiff (or applicant) representative actions and defendant (or respondent) representative actions: see also BT (Australasia) Pty Ltd v New South Wales [1997] FCA 1553 per Sackville J.  As Sackville J noted, members of a represented group may have much to gain when represented by a plaintiff and everything to lose when represented by a defendant.

35                  The development of the law relating to defendant representative proceedings reflects the fact that they have typically been used in the past against members of unions and unincorporated associations: see, e.g., Taff Vale Railway Co v Amalgamated Society of Railway Servants [1901] AC 426 at 438-439 per Lord Macnaghten, 443 per Lord Lindley; London Association for Protection of Trade v Greenlands Ltd [1916] 2 AC 15 at 30 per Lord Atkinson, 39 per Lord Parker; and John v Rees [1970] 1 Ch 345 at 371 per Megarry J.  

36                  Amos Removals & Storage Pty Ltd v Small [1981] 2 NSWLR 525 is illustrative of this history.  The plaintiffs, who were members of the New South Wales Road Transport Association, sued 19 members of the Committee of Management of the Shipping Section of the Federated Clerks Union of Australia (NSW Branch) as representing the Section, or at least those members of the Section that attended a meeting at which certain resolutions were passed.  The plaintiffs relied on the representative procedure of the NSW Supreme Court, which, as we have seen, was then equivalent to O 6 r 13.  In giving reasons for judgment in the case, Hunt J identified three requirements for a defendant representative procedure: first, that the persons to be represented formed an identifiable group or class; secondly, that the person selected as a representative must be in management of the group or class and have control of its funds; and thirdly, that those selected to be represented must have a common interest or a community of interest with all other members: see Amos Removals [1981] 2 NSWLR 525 at 529-530. Hunt J held that this last element was satisfied in Amos Removals because “the liability as alleged against the members ... was … enlarged to become one of conspiracy, based upon what is said to be the history of concerted action by those members and the resolution” at the meeting: Amos Removals [1981] 2 NSWLR 535 at 520. 

37                  The respondents in this case made much of the “management” issue.  Subsequent cases indicate, however, that “management” is neither a sufficient nor a necessary requirement, although there must be something that binds the group together so as to give rise to a commonality of interest and render a representative proceeding appropriate.  In truth, in Amos Removals, Hunt J’s first two “requirements” are to be understood as factors that were strongly indicative of a commonality of interest.  In other circumstances, respondent representative orders have been made where there has been no management and control, although there has been some other factor linking the group.  For example, a respondent representative order was made in an action involving breach of trademark to support an ex parte interlocutory injunction against the members of the represented group where the evidence indicated that there was in fact a group of persons acting in a co-ordinated way: see Tony Blain Pty Ltd trading as Acme Merchandising v Jamison (1993) 41 FCR 414.  See also EMI Records Ltd v Kudhail [1985] FSR 36.  In these cases, there were factors other than mere management and control that supported the representative order, such as knowledge within the group of the group’s members, co-ordinated action, and common purpose.

38                  Even against unincorporated associations and unions, a representative proceeding is not properly brought where the essential inquiries concern the individual circumstances of the members.  For example, in Geelong Wool Combing Ltd v Textile, Clothing and Footwear Union of Australia (2003) 130 FCR 447 at 452 [12], Finkelstein J held that the representative procedure of this Court was unavailable and that the union could not represent its members participating in a picket.   First, the evidence did not establish that the members of the group were acting with a common purpose and, secondly, the proceeding was one to recover penalties.  As his Honour said, the applicant had to establish that each respondent had contravened the legislation, which involved an inquiry into each respondent’s conduct and purpose and, if the contravention were established, separate consideration of the amount of the penalty. There was, therefore, “no community of interest” amongst the members of the group.

39                  In the context of a defendant (or respondent) representative proceeding, the nature of defences may be especially significant.  The authorities support the proposition that a proceeding will generally not disclose persons in the same interest where defendants are entitled to raise different defences, although this is not an absolute rule.  I agree with Mason P who said, in Trustees of the Roman Catholic Church v Ellis 70 NSWLR at 582 [74], that “[t]he requirement that each member of the class have identical defences may not be an absolute proposition”.  Whether the fact that different defences may be taken will defeat a finding of commonality of interest depends on the nature of the case, the centrality of any common questions of law and fact, and, having regard to the proceeding as a whole, the reality, importance and likely scope of the different defences.   

40                  For example, the general rule (that separate defences defeat the same interest criterion) did not prevent insurers being sued via representative orders in Irish Shipping Ltd v Commercial Union Assurance Co Plc [1991] 2 QB 206, where a shipowners’ contractual claim, which all insurers had an interest in resisting, disclosed a community of interest amongst the insurers, even though there was a possibility that some foreign insurers might have a defence not available to all insurers: see [1991] 2 QB at 227 per Staughton LJ, 231-232 per Sir John Megaw, and 240 per Purchas LJ.  An argument that the representative order might work injustice because a represented insurer might wish to contend lack of authority, fraud or misrepresentation was put aside on the basis that there was “no suggestion” that any such contention would be made, and appropriate steps could be taken if there were: see [1991] 2 QB at 232. 

41                  In other circumstances, however, the availability of different defences has precluded a finding of community of interest. Thus, in Mercantile Marine Service Association v Toms [1916] 2 KB 243, the members of an unincorporated association were to be represented on the defendant’s side in a libel action against them.  Swinfen Eady LJ noted, at 246, that the various members of the association might be “in a wholly different position”, saying:

If the members of the management committee were sued, and if in fact they had authorized the publication of the libel they could raise such defences as might be open to them.  It might be that their defence would be that the words complained of were not capable of the meaning alleged or of any defamatory meaning, or that the words did not refer to the plaintiffs.  The other members of the association, if sued, might say that, however defamatory the words complained of might be, they did not authorize their publication; that they were on the high seas and knew nothing about the matter. 

42                  Similarly, in Roche v Sherrington [1982] 2 All ER 426, a proceeding to set aside gifts on the grounds of undue influence against defendants representing the present members of  Opus Dei, an organisation within the Roman Catholic Church, failed for lack of common interest amongst the represented defendants.  Slade J held that the representative proceeding rule was not available against the defendants because members of the group were likely to have separate defences. His Honour said that “where separate defences may be opened to some members of the class in question, there can be no common interest within the rule”: see [1982] 2 All ER at 434.

43                  Further, if membership of a defendant group is liable to fluctuate, then this may indicate a want of sufficient particularity and a lack of commonality: see Hardie & Lane Ltd v Chiltern [1928] 1 KB 663 and Minister for Industrial Development of Queensland v Taubenfeld [2003] 2 Qd R 655.  In Taubenfeld at 659, Mackenzie J pointed to “the difficulty in establishing the necessary identity of interest of all persons against whom the [representative] order was sought and of eliminating the possibility of different defences” on account of the fluctuating nature of membership of the group.

44                  Having discussed some of the authorities, I turn to this proceeding. The jurisdictional question presented by O 6 r 13(1) requires me to decide whether there was a commonality of interest amongst Swimart Balwyn and the members of the putative group at the time the proceeding commenced.  That is, O 6 r 13(1) requires the Court to be satisfied that numerous persons had the same interest in the proceeding at the time it was commenced.  If this requirement is not satisfied, then the proceeding was not properly begun and there is no representative proceeding to continue.  Having regard to the original statement of claim, the jurisdictional question thus becomes whether there was a commonality of interest amongst Swimart Balwyn and the Swimart franchisees displaying the Poster or Display System, or installing a pool filtration system in accordance with the Poster or Display System. 

45                  It is plain enough that Stacey Brothers has had difficulty in defining the group to be represented.  This problem is not merely the result of the fact that it knows insufficient about Waterco’s business and the Swimart franchise, although lack of knowledge is a contributing factor.  The problem is also attributable to Stacey Brothers’ attempt to capture too much in the representative net, with the result that there is a lack of commonality of interest amongst members of the group and between the group and Swimart Balwyn.

46                  In my view, bearing in mind all relevant matters, including the following, there was no such commonality of interest within the putative group and with Swimart Balwyn to permit Stacey Brothers to rely on O 6 r 13(1).   

1.                       The group would include persons whose allegedly infringing conduct differed in significant respects.  Some but not all members of the group would be franchisees who displayed the Poster.  Some members of the group would be franchisees who installed a pool filtration system allegedly in accordance with the Poster, even though not displaying the Poster.  Further, Swimart Balwyn’s conduct was unique in the sense that it made the Display System. It follows that, although some members might have an interest in resisting the allegation that, in displaying the Poster, they infringed Stacey Brothers’ patent rights, there are likely to be other members of the group with no such interest.  Indeed, there might be no community of interest amongst installers of pool filtration systems, if some urge that their installation differs relevantly from other installations and the installation depicted in the Poster.  Furthermore, Swimart Balwyn’s interest in resisting the infringement allegation is likely to become an interest in showing that the whole of its conduct, as defined by reference to the Poster and the Display System, did not amount to an infringement. 

2.                  In these circumstances, having regard to the nature of Stacey Brothers’ claims, it would be open to Swimart Balwyn and the group members to rely on various defences of significantly different kinds.  The respondents touched on some of these defences in their submissions.  The availability of different cross-claims would in such a case as this also be pertinent.  In this case, the possibility of separate defences and cross-claims does not merely signify that injustice might be done if the Court does not manage the proceeding so as to allow these defences and cross-claims to be run.  Rather, it signifies that there is in truth no commonality of interest between the members of the group and with Swimart Balwyn. 

3.                  Accordingly, this is not a case in which it can be said that, at the time the proceeding began, Swimart Balwyn and the represented persons had the same interest in the determination of some substantial question of law or fact.  Nor can it be said that there was a significant question common to all members of the group.  When the proceeding commenced, there was no common question concerning the display of the Poster in which all members of the group had an same interest, notwithstanding that this is the question that Stacey Brothers would now seek to put forward as common to all.

4.                  The relief, including the declaratory relief, sought by Stacey Brothers also emphasises that there is in truth no commonality of interest in the group.

5.                  Further considerations militating against a finding of same interest include that Swimart Balwyn has no relevant relationship with the members of the group.  Swimart Balwyn is not in control in any sense.  Nor does it know of, or co-operate or have a common purpose with, members of the group. 

6.                  The group is open-ended. Persons may enter the group in the course of the litigation, as, for example, where, during this time, they install a pool filtration system in accordance with the Poster.  It would, therefore, be difficult to identify the separate defences that might be open to all members of the group.  The fact that Stacey Brothers might close the group in the course of the litigation would not cure the jurisdictional difficulty that existed when the proceeding commenced.

7.                  The provisions of O 6 r 13 that operate to protect a represented person in a properly constituted respondent representative proceeding cannot make up for a failure to meet the jurisdictional requirement in O 6 r 13(1).  Whilst it may in many cases be appropriate to defer ruling on the appropriateness of a representative proceeding, when it is clear that there is no commonality of interest as required by O 6 r 13(1), the proceeding simply cannot be a representative one.

47                  Bearing in mind the above considerations, I conclude that, at the time the proceeding commenced, there was no commonality of interest among the group that Swimart Balwyn was to represent and with Swimart Balwyn.  Accordingly, the representative proceeding – as it was framed – was not properly commenced and cannot be continued. 

48                  If Stacey Brothers had (contrary to the above conclusion) made out the “same interest” requirement, there would be a further question whether the same interest was shared by numerous persons. The respondents pressed this issue in this case.  They referred to Mr Sloan’s statement in his affidavit of 11 February 2009 that some Swimart franchisees claimed not to have displayed the Poster at all. 

49                  Whether there are sufficient persons to constitute “numerous” persons has been said to depend on whether “the parties were so numerous that you could never ‘come at justice’ … if everybody interested was made a party”: see Duke of Bedford v Ellis [1901] AC at 8 per Lord Macnaghten.  Today, the question may be put a little differently – whether the representative proceeding can be regarded as an efficient and just way to proceed, having regard to the likely costs, the issues involved and the capacity of the Court to manage the proceeding suitably.  In view of my conclusion as to lack of commonality of interest, it is unnecessary to explore this question further.  It is also unnecessary to consider the effect on this issue of Mr Sloan’s third affidavit, as to which see below.

50                  Carnie also showed that, even if the jurisdictional requirements of O 6 r 13(1) are satisfied, the Court may nonetheless consider, as a matter of discretion, that the proceeding ought not continue as a representative proceeding.  Various factors might be relevant to this determination, including whether alterations to the group description can be allowed, notice requirements for group members, and the practicalities of settlement or discontinuance of the proceeding.  As Mason CJ, Deane and Dawson JJ said in Carnie at 405, determining the importance of such matters in the context of the particular case is not necessarily straightforward, especially in the context of a defendant representative proceeding.  Again, having regard to the conclusion I have reached on the lack of commonality of interest, it is strictly unnecessary to explore these discretionary considerations further. 

51                  Since, however, Stacey Brothers specifically sought to amend the definition of the group, in order, so it said, better to “capture” the group, I discuss briefly whether the amendment might be made. 

52                  If granted, the amendment that Stacey Brothers seeks by its motion would expand the group of represented persons in the sense that the group would henceforth include persons who were not Waterco franchisees.  In SZ v Minister for Immigration and Multicultural Affairs (2000) 172 ALR 172, at 179, Lehane J held that O 6 r 13 did not allow an amendment that would expand the group of person on whose behalf an applicant had commenced a proceeding.  The case might be distinguished on the basis that it concerned an applicant representative proceeding, as opposed to a respondent representative proceeding.  I do not, however, consider that this approach would withstand scrutiny, because his Honour’s reasoning is applicable in both kinds of representative proceedings.  Further, there is no reason to doubt his Honour’s reasoning. 

53                  In this proceeding, if there were to be an amendment to expand the persons sought to be bound, the amendment would need to take place under O 6 r 2, governing the joinder of parties.  This is not an amendment of a kind that might be made under O 13 r 2.  Having regard to the terms of O 6 r 2, Stacey Brothers would be obliged to seek leave to amend pursuant to O 6 r 2(b).  There is power under O 6 r 2(b) to join additional parties after the commencement of the proceeding.  It is, however, a discretionary power.  Stacey Brothers did not apply for leave under O 6 r 2 in respect of any particular respondent.  Nor did it advance submissions in support of any discretionary exercise of the power in its favour in respect of any respondent.  It is therefore inappropriate to say anything more about the possible application of O 6 r 2.  It should be borne in mind that any amendment under O 6 r 2 would require amendment of the terms in which the substantive relief claimed in the proceeding is framed. This and other matters would fall for consideration in an application under O 6 r 2(b) to join additional parties. 

54                  Stacey Brothers relied on passages in Bright v Femcare Ltd (2002) 195 ALR 574 at 580 [18] and 589 [79] per Lindgren J, in support of its argument that the respondents’ challenge to the representative character of the proceeding was premature.  I observe that this was a case under Pt IVA of the Federal Court of Australia Act, and that his Honours’ comments were clearly directed to this legislation.  Different considerations apply in a case such as this, where it is apparent even at this early stage that the putative group is not held together by the same interest, so as to satisfy O 6 r 13(1) of the Rules.

disposition

55                  For the reasons stated, I would dismiss Stacey Brothers’ motion, with costs.  I would order that the application and the statement of claim be struck out in so far as each refers to “the Represented persons”, and in particular the following paragraphs be struck out:

(a)        in the application – paragraph 9 (in its entirety) and paragraphs 1 to 5 and 7 (in              so far as these paragraphs refer to “the Represented persons”); and

(b)        in the statement of claim – paragraphs 4, 5, 30 and Schedule 1 (in their                          entirety) and paragraphs 10, 12, 13, 14, 16, 17, 18, 19, 20, 21, 23, 24, 27, 28                    and 29 (in so far as these paragraphs refer to “the Represented persons”). 

Stacey Brothers will have seven days to file and serve an amended statement of claim in conformity with this order.  Since the respondents have succeeded on their motion, they should also have their costs. 

matters arising after the hearing of the motions

56                  At the commencement of these reasons, I noted that, after the hearing, the respondents sought leave to file a third affidavit by Mr Sloan.  This affidavit concerned various matters, chiefly the printing and distribution of the Posters, and the information obtained as a result of inquiries made of Swimart franchisees.  In a letter dated 13 March 2009, the respondents’ solicitor wrote:

The Respondents’ position is that the content of the affidavit does not … impact on the majority of the arguments raised by the Respondents and, subject to the stance taken by the Applicant, the Respondents propose that the Court decide on the Notices of Motion and arguments already advanced.  If the Applicant wishes to be heard on matters arising from the affidavit then we propose that they be given the opportunity to file supplementary written submissions limited to those issues.

57                  Stacey Brothers’ response was to seek the issue of a subpoena directed to Waterco, c/- its solicitor in this proceeding, seeking a range of documents, some of which might attract legal professional privilege claims.

58                  For the reasons earlier stated, it has proved unnecessary to refer to Mr Sloan’s third affidavit in determining the outcome of the present motions.  I have not formally granted leave to file this affidavit, although I have had regard to the exchanges at the hearing of the motions and would hear the parties briefly on the question if they so wished.  If leave were pressed, this might be the occasion for Stacey Brothers to renew its application for leave to issue the subpoena directed to Waterco.  Whether or not Stacey Brothers wishes to do so may depend on the status of Mr Sloan’s third affidavit and the manner in which Stacey Brothers proposes to pursue the present proceeding.

Associate:

Dated:         5 May 2009